US Outlook Report: The Curious Case of Missing Retail Sales
Here we go again. February retail sales once again missed economists’ expectations, falling 0.6 percent on the month after a steep 0.8 percent monthly decline in January. This caps three consecutive months now of declining retail sales. Looked at in a vacuum, such an atrocious performance could herald an impending recession. That is not our forecast for the near-term U.S. economy, so the recent declines in retail sales deserve some explanation and examination.
My first observation: Just like last year’s first quarter, the weather is messing with the data. Throw in a West Coast ports slowdown that came to a head last month, and it’s not hard to conclude we may be receiving a false signal from a normally reliable report on the health of the consumer. Much of the decline in sales came from weak auto sales on the month. Bad weather across much of the country kept people from car shopping, while auto imports were likely delayed due to the West Coast ports slowdown.
Similar declines in motor vehicle sales occurred last January during the bad weather last winter; but those sales declines were rapidly unwound in subsequent months, as pent-up demand bolstered auto sales over the next two months.
I would be more worried about this down trend in the retail sales data if other data validated the declines we have seen over the last three months. All other indications suggest the consumer is alive and well. So what we lose in spending in the first quarter is likely to be made up through pent-up demand in the second quarter of this year. Real income growth is accelerating, and savings rates have improved, giving consumers more ability to spend at a faster pace in the months ahead.
What are the implications of delayed retail sales for our forecasts for 2015? We have lowered our Q1 Real GDP forecast to 2.0 percent annualized from 2.4 percent prior, and our Q1 real consumer spending forecast to 2.8 percent for Q1 from 3.3 percent. GDP growth is expected to spring-board back to around 3.0 percent over the rest of the year as consumer spending returns, keeping our annual growth forecasts virtually intact.
To find out more, check out this week’s US Outlook Report.
Tags: economy, jobs